The National Gallery of Australia has launched legal action in New York after discovering taxpayers paid US$5.0m ($5.6m) for a statue that had allegedly been stolen.

The matter relates to the gallery’s 2008 purchase of a bronze sculpture titled Shiva as Lord of the Dance (Nataraja), dating from 11th century India.

Lawyers acting for the gallery claim a New York-based dealership, Art of the Past, “fraudulently induced” the gallery to buy the statue by making “misrepresentations and false assurances concerning the history of the Shiva”.

Court documents show the dealer provided the gallery with sales receipts for the Shiva dating back to 1970. Subsequently the gallery paid for the item to be shipped to Australia, added to its collection, and paid for in two instalments.

But in July 2012, US authorities raided a warehouse belonging to the business’s director, where they seized tens of millions of dollars worth of allegedly stolen art, including many Indian statues from a period similar to that of the Shiva. A principal has since pleaded guilty to multiple counts of trafficking stolen art.

Further investigations found the Shiva was stolen from a temple where it had been the property of the central government of India.

“Based on information obtained ... the Shiva has lost its financial value, and its clouded title and notoriety means that the work cannot be promoted as a key work of art in the gallery’s Indian collection,” court documents read. Attempts to sell the work are unlikely to be successful due to the uncertainty surrounding its past, the document went on.

The gallery is attempting to recover the cost of the Shiva, plus interest, legal fees and freight costs.

The gallery declined to comment on the matter while it is before the court.